BUDGET REINFORCES FISCAL CONSOLIDATION

Financial Secretary Paul Chan said in his Budget speech today that he is pursuing a “reinforced version” of the Government’s fiscal consolidation programme, as he committed to strictly containing public expenditure while minimising the impact on public services and livelihoods.

Mr Chan stated that the reinforced version of the programme involves a cumulative reduction of government recurrent expenditure by 7% from now through 2027-28.

He stressed that the Government will proceed in a steady and prudent manner, and that the reinforced programme gives a clear pathway towards the goal of restoring fiscal balance in a planned and progressive manner within the Government’s current term.

To seize on opportunities brought about by the rapid advancement of innovation and technology, the Government will accelerate the development of the Northern Metropolis (NM).  Mr Chan described this as an investment in Hong Kong’s future. 

“In the midst of global changes, technological innovation is our core engine,” he said.  “We must expedite our economic development, in particular boosting new economic driving forces while enhancing the competitive edge of traditional industries at an accelerated pace.”

The Financial Secretary highlighted that an unstable international geopolitical situation, escalating trade conflicts, and elevated global interest rates last year exerted adverse impacts on local economic activity and confidence. Nevertheless, the central government rolled out measures that have benefitted Hong Kong, he said.  

These measures, together with the Government's own initiatives to support the economy, and interest rate cuts in the US since mid-September, have boosted different economic segments in Hong Kong. Accordingly, the city's economy recorded moderate growth of 2.5% last year.

As a result of various measures enacted by the central authorities, the promotion of mega events organised in Hong Kong throughout the year, and the recovery of the city’s air traffic capacity, the number of visitors increased by 30% to about 45 million last year. Total exports of services grew 4.8% for the year.

The labour market remained tight. The latest unemployment rate stayed low at 3.1%, while the median monthly employment earnings of full-time employees grew a solid 4.8%, year-on-year, in the fourth quarter of last year.

Inflation was mild overall. Netting out the effects of the Government's one-off measures, the underlying consumer price inflation rate was 1.1% last year.

The residential property market continued to adjust in the first three quarters of last year, but it stabilised following the interest rate cuts. For the year, the number of transactions increased by 23% to about 53,000, while property prices fell 7%. The non-residential property market remained stagnant.

Looking ahead, Mr Chan stressed trade protectionism affects global trade and capital flows, dampens investment and consumer confidence, and weighs on global economic growth.

Nevertheless, he said it is encouraging that the Mainland economy continues to grow steadily. The central government’s implementation of a more proactive fiscal policy and a moderately accommodative monetary policy, along with its efforts to expand domestic demand, add momentum to economic growth.

The gradual easing of monetary policies by major central banks should support their economic growth, the finance chief stated, adding that Hong Kong's exports are expected to perform steadily this year.

Moreover, riding on various policies and the good momentum established last year, visitor arrivals should continue to increase. Together with the recovery in other cross-boundary economic activities, these should drive continuing growth in services exports.

On domestic demand, investors may be more cautious due to uncertainties in the external environment. However, the expected relaxation of global financial conditions will bode well for fixed asset investment. Private consumption showed signs of stabilisation towards the end of the year. A sustained increase in residents' incomes and steady development of the asset markets would boost consumption further.

As for prices, it is expected that domestic cost pressures might increase as the economy continues to grow. External price pressures should remain broadly in check. 

Mr Chan forecasts the underlying inflation rate and headline inflation rate this year will be 1.5% and 1.8% respectively.

In the medium term, he revealed that monetary policy normalisation will help sustain solid growth in the global economy. The Global South, in particular the Mainland, will continue to be an important driver of global economic growth.

He added that geopolitics will still bring challenges to Hong Kong's economy. However, he stressed that the Mainland is promoting high-quality development through scientific and technological innovation, comprehensively deepening reform, and expanding high-standard opening-up. Hong Kong is also making every effort to promote market diversification and open up new growth areas, and the economy is expected to grow steadily.

“We forecast that Hong Kong's economy will grow, on average, 2.9% a year in real terms from 2026 to 2029. The underlying inflation rate is forecast to be on average 2.5% a year.”

---

PREVIOUSNEXT